On appeal from the Superior Court of New Jersey, Chancery Division, Sussex County, Docket No. C-12-12.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued November 27, 2012 -
Before Judges Messano and Ostrer.
By leave granted, defendants Anna Tran and Anthony Le appeal from a preliminary injunction enforcing a restrictive covenant that barred them from competing with their former employer, Truong, LLC, (plaintiff),*fn1 which operated two nail salons, V.I.P. Nails in Vernon Township, and V.I.P. Nails Too in Wantage Township. We stayed the injunction pending appeal and now reverse.
Plaintiff hired Le in May 2005, and Tran in April 2009 to work as manicurists. Shortly after they began work, they signed a restrictive covenant that prohibited them from working within twenty-five miles of the municipalities where plaintiff's salons were located. The restriction lasted for two years after their employment terminated. The covenant stated:
Employee agrees that during the term of this Agreement and for a period of two consecutive years immediately following the termination of this Agreement or [his or her] employment, whichever occurs later, and regardless of the cause of termination, [he or she] will not by [himself or herself] or on behalf of any other person, firm, partnership or corporation, engage in the business of nail salon within a radius of 25 miles from Vernon [and] Wantage, New Jersey.
Employee agrees that [he or she] will not, directly or indirectly, for [himself or herself] or on behalf of, or in conjunction with any other person, firm, partnership, or corporation, solicit or attempt to solicit the business or patronage of any person, firm, corporation or partnership within a 25 mile radius for the purpose of selling manicure or pedicure services or other products similar to those dealt in by company.
Employee shall not perform such other incidental business and service as [the] company [is] now engaged in, nor will employee disclose to any person any of the secrets, methods, or systems used by company in and about its business.
Le and Tran each ceased working for plaintiff for a period of months - Le from June to September 2006, and Tran from August to November 2009 - then returned to plaintiff's salon. Both Le and Tran resigned in August 2011. In May 2012, Le opened Anthony's Nails, a competing nail salon, in the McAfee section of Vernon, and employed Tran there. Anthony's Nails was located within five miles of plaintiff's salons.
Truong had learned of Le's business plans before Le opened for business. In March 2012, plaintiff filed a proposed order to show cause with temporary restraints, along with a verified complaint seeking injunctive and other relief as a result of defendants' alleged breach of the employment agreement.*fn2
Plaintiff also asserted claims of tortious interference with contractual relations and unfair competition.
Judge Thomas L. Weisenbeck conducted a non-testimonial hearing on the request for temporary restraints on April 26, 2012. The court explored issues in oral argument, but reached no formal findings, regarding whether plaintiff possessed an enforceable interest in confidential customer lists, and whether the temporal and geographical limits of the restrictive covenant were justified. Rather than focus on the enforceability of a twenty-five mile limit, the court suggested that at least a five-mile restriction would be reasonable. Defense counsel declined to concede the reasonableness of a two-year restriction, which the court noted had been accepted in the context of other cases.
The court concluded there was a disputed issue of fact regarding whether the agreement was in force, as Le and Tran asserted their respective breaks in service terminated their employment under the agreements; consequently, the two-year period of post-termination restrictions had possibly already expired. Plaintiff asserted Le's interruption in service was a vacation and his agreement remained in force. He asserted Tran breached the agreement when she left to work for a nearby competitor and the restraints applied upon her return.
Judge Weisenbeck secured the parties' consent to interim restraints, embodied in an order issued the next day that barred defendants from directly soliciting plaintiff's customers, pending further order of the court. The judge then allowed a period of expedited discovery; referred the matter to mediation; and, if mediation were unsuccessful, then to another judge in the vicinage to conduct a preliminary injunction hearing. The order provided the hearing would address "factual issues relating to the timing of defendants['] . . . termination of the non-competition agreements and other related issues[.]" Judge Weisenbeck recognized, on the record, "of course ultimately [the court is] going to rule on the propriety of the restraints that you're seeking."
At the preliminary injunction hearing on June 26, 2012, the testimony focused on the nature and impact of Le's and Tran's breaks in service. Plaintiff also presented evidence regarding the confidentiality of its customer lists, defendant's access to the lists, and the financial harm that defendants allegedly had already caused plaintiff. It was undisputed that both Le and Tran signed their agreements in 2006 and 2009 respectively, both left in August 2011, and they had commenced work at Anthony's Nails in McAfee in May 2012.
Truong testified Le informed him in June 2006 that Le was going to help Rosa Dahn,*fn3 his girlfriend and another VIP Nails employee at the time, move to Missouri for "a month or two." About a week later, Le allegedly told Truong that Le and Dahn planned to visit family in Vietnam, as did many of plaintiff's employees. Truong testified that after Le's and Dahn's New Jersey lease expired, they both lived briefly in Truong's home before leaving for Missouri in Dahn's vehicle. Le left articles in Truong's home, and did not say he quit.
Thahn Nguyen, Truong's live-in girlfriend and a receptionist at plaintiff's salons, also testified about Le's departure. She claimed Truong threw a farewell party for Dahn, but not Le. Nguyen testified Le informed her he was leaving his school books behind because he would return to finish college in New Jersey, where he had been enrolled. Truong's and Nguyen's version of events was supported by the testimony of two employees. Truong claimed that sometime in September, Le called to tell Truong he had returned from Missouri, and would be at the salon the next Monday. Le then resumed his station, which had been kept vacant in his absence.
Le claimed he terminated his employment in June 2006, intending to relocate permanently with Dahn. Aside from his visit to Vietnam with Dahn, Le and Dahn lived in Dahn's sister's house while searching for an apartment. Le testified he worked at a nail salon owned by Dahn's sister, applied for a Missouri manicurist license, and explored colleges in Missouri.
However, in late August, Dahn and Le had a falling out, Dahn broke off their relationship, and Le unexpectedly returned to New Jersey. Both Dahn and her sister, residents of Missouri, appeared at the hearing and corroborated Le's version of the facts pertaining to his time in Missouri. Dahn denied there was a farewell party for her.
Le testified he left boxes of unimportant items in Truong's garage because he could not fit them in Dahn's vehicle, and he planned to eventually retrieve them when he returned to Jersey City to visit his parents. Le stated that upon his return, no one asked him to sign a new employment contract, nor did Truong inform him the 2005 agreement was still effective.
Turning to the circumstances of Tran's interruption of service, Truong testified that in September 2009, Tran "left" and "went somewhere to work" within the proscribed twenty-five mile radius. Nguyen testified that after she and Truong learned Tran was working for a nail salon about ten miles from one of plaintiff's salons, Nguyen told Tran that plaintiff would "have to take legal action" if she did not return. She offered Tran her job back, and Tran accepted. Truong did not ask Tran to sign a new employment agreement upon her return. However, Nguyen claimed she told Tran, in Truong's presence, that the old employment contract was still in effect. Truong did not corroborate ...